2. Question 1:
What is the Mandatory Provident Fund,
when was it launched, and what pension
schemes were in place before the launch
of the MPF?
3. Mandatory Provident Fund (MPF)
Compulsory retirement scheme in Hong Kong
All employers in Hong Kong have to join
Implemented on 1st December 2000
Both employers and employees contribute to the fund
If your monthly salary is above $6500, the current
contribution rate is 5% of salary, with a cap of $1000.
Employer will choose a MPF provider.
Employee can choose a fund offered by the MPF
provider.
Employee will receive the benefits upon retirement.
4. Mandatory Provident Fund (MPF)
(continued)
Before the implementation of MPF:
Only some (not all) companies offer retirement benefits to
their employees
Different employers have different retirement schemes.
It is governed under ORSO. (Occupational Retirement
Schemes Ordinance)
Source: Hong Kong Fact Sheet: MPF Sheet
http://www.gov.hk/en/about/abouthk/factsheets/docs/mp
f.pfd
6. MPF Industry
Supervised by the MPFA (Mandatory Provident
Fund Schemes Authority)
Supervises the MPF Trustees and MPF Providers
Oversees MPF products and MPF intermediaries
(agents)
Also oversees ORSO schemes
Issued “best code of practice”
Source: http://www.mpfa.org.hk/eindex.asp
8. Who needs to contribute to MPF?
All employees aged between 18 to 64
Self employed workers also included
Begin contribution after 60 days of employment
People that are exempted are:
Self-employed hawkers
Household employees (domestic helpers)
Employees already covered under ORSO
Expatriate workers working in HK for less than one year
Expatriate workers already covered under overseas schemes.
Source:
www.gov.hk/en/about/abouthk/factsheets/docs/mpf.pdf
9. • Question 3.4
• relevant income
• how are contributions calculated?
• MPF “salary cap”?
10. Relevant income
Pensionable income + taxable benefits in kind - allowable business
expenses.
(before deduction of personal allowances).
Taxable profits – capital allowances/losses from previous years.
11. How are contributions calculated
For both employee and employer:
- 5% of employee’s relevant income is contributed
Monthly <$6500 $6500≤__≤$20000 >$20000
relevant income
Mandatory not required(only 5% of relevant income 5% of $20000
contribution rate voluntary)
Salary cap
- currently $20,000* per month
Source:
Hong Kong Fact Sheet: Mandatory Provident Fund Fact Sheet
http://www.gov.hk/en/about/abouthk/factsheets/docs/mpf.pdf
Hong Kong MPF Schemes Authority
http://www.mpfa.org.hk/eindex.asp
Finance glossary
http://www.finance-glossary.com/define/net-relevant-earnings/1006
12. Q3.5 MPF TRUSTEE & MPF
SERVICE PROVIDER
Sylvia Sung and Radhika Mathur
13. MPF Trustee and Service Provider
MPF TRUSTEE MPF SERVICE PROVIDER
Trustees are in-charge of the security Service Providers are the officials that
offer the clients the products and
schemes
Example - HSBC Provident Fund Trustee Example - Schroders
(HK) Limited
14. TRUSTEES REGISTERED WITH
MPFA
19 trustees are registered with MPFA
Some of them include HSBC Institutional Trust Services
(Asia) Limited, Principal Trust Company (Asia) Limited etc.
LIST OF SOURCES
Trustees with MPFA-
http://www.mpfa.org.hk/english/reg_use/reg_use_amt/reg_use_amt.asp
Schroders MPF Scheme
http://www.schroders.com.hk/retire/en/mpf-scheme.html
15. Q3.6:WHAT IS AN MPF
INTERMEDIARY? HOW
MANY ARE THERE, WHAT
DO THEY DO, AND WHO
REGULATES THEM?
16. MPF Intermediary
MPF Intermediary is someone who:
In a position as an officer/agent/employee
Passed an MPF Intermediaries examination recognized by the MPFA
As of January 31st 2012: 29,555 registered MPF Intermediaries
Corporate: 482
Individual: 29,073
Permitted to advise on insurance policies: 20,679
Permitted to advise on securities: 5,144
Permitted to advise on both securities and insurance policies: 2,350
Permitted to sell MPF schemes without rendering specific investment
advice: 900
17. MPF Intermediary
A person or company that engaged in:
selling MPF schemes
advising clients on constituent funds or underlying approved
pooled investment funds of MPF schemes
a representative or a corporation that issued with MPF certificates
upon registration with the MPFA
supervised by one or more of the following regimes:
SFC regime/IA regime/MA regime
18. Question 7
What is the Employee Choice Arrangement and why has
it been proposed?
19. Employee Choice Arrangement
Allows employees to choose the MPF provider as well as the
different types of MPF funds.
Aims at lowering the admin fees charged by MPF providers.
When there is more competition among MPF providers, it
creates pressure and forces the MPF providers to lower the
fees.
Originally scheduled to come into effect in April 2011
Government has postponed it and it is now expected to
come into effect in the second half of 2012
From: MPF Choice Put Back to July 2012.
http://topics.scmp.com/news/hk-news-watch/article/MPF-choice-put-back-to-July-2012
21. Mandatory Provident Fund
(MPF)
Aging problem (28 % above 65 in 2039)
Birth rate dropped significantly
Compulsory saving scheme
Contribute monthly to the scheme according
to their salaries
Aims to ensure the provision of retirement
protection
22. The types of the Scheme
Master Trust Schemes:
-pool together contributions from various employers and
their relevant employees, and self-employed persons
Employer-sponsored Schemes:
-limited to relevant employees of a single employer and its
associated companies.
Industry Schemes:
-specially established for employees of the catering and
construction industries
Reference
http://www.mpfa.org.hk/eindex.asp
23. Q3.9:What is an MPF constituent
fund
1. An investment fund
2. Part of a MPF scheme
3. Comprised of different Fund Classes
4. Each Fund Class is treated as a separate
investment fund on the platform
24. Types of constituent
Fund Characteristics
The fund or a class of units of the fund
invests no less than 70% of its assets in
Mixed Assets Fund
bonds and equities, with a specified
maximum level of exposure to equity.
The fund or a class of units of the fund
Bond Fund has no less than 70% of assets invested in
bonds.
The fund or a class of units of the fund
Equity Fund has no less than 70% of assets invested in
equities.
A guaranteed amount of return of capital
of the fund or a class of units of the fund
Guaranteed Fund
will be paid to holders in future according
to the features of the guarantee.
25. Types of constituent
Fund Characteristics
The fund, previously known as the capital
preservation fund, is essentially a money
market fund investing in Hong Kong dollar
Money Market Fund - MPF Conservative based assets such as short-term bank
Fund deposits and high quality debt securities.
The expenses of the fund are deducted
based on a mechanism specified in the
regulation.
The fund invests no less than 70% of its
Money Market Fund - non MPF
assets in short-term deposits and debt
Conservative Fund
securities.
Funds that do not fit within any of the
Others
description above
Source: http://www.mpfa.org.hk/
26. Q3.10:How has the Mandatory
Provident Fund performed
over the past year, past five
years, and/or historically
since it was launched?
Raksha Sawarthia
Yeon Soo Kwak
27. 10 years 5 years ago 1 year ago
ago
As at 31 As at 31 As at 31 As at 31
March 2001 March 2006 March 2010 March 2011
Enrollment
Rates
Employers 82% 77% 100% 100%
Employees 92% 95% 100% 98%
Self-employed 90% 99% 74% 78%
persons
Number of 19
approved
trustees
Number of 38 41
registered
scheme
Aggregate Net $15.694 $164.61 $373.31 $378.28
Asset value of
all schemes
billion billion billion billion
Annualized 6.99% 4.80% 5.40%
Internal rate of
return for the
MPF system
29. LABU 2052 – Finance Case
Q3.11: what do the terms
- Fund Expense Ratio(FER),
and
- Fund Risk Indicator(FRI)
mean and how is each one
calculated?
Daria So
Daniel Wong
30. Fund Expense Ratio (FER)
Definition
A standard measure which indicates
the total amount of fees and
expenses charged to a fund
expressed as a percentage of the
fund's net asset value • the expenses are built into
Fees and expenses include all the fund’s overall return
administrative fees and other
expenses. • they are almost hidden and
people don’t really consider
the effect they have
• Lower FER Higher returns
31. Fund Risk Indicator (FRI)
Definition Usefulness:
•Shows the risk of a • Suggests a trade off
Mandatory Provident between risk and
Fund (MPF) investment return
Measurement of FRI: • Comparison between
•Higher FRI Higher risk
various funds
• Standard deviation Relative risk
over a three-year
period
• Shows the volatility of
fund price around the
average price
33. Q3.12:When and by whom can accrued
benefits
be withdrawn from a member’s MPF?
1)Age of 65 (Generally)
2)Special Case
early retirement at the age 60
permanent departure from Hong
Kong
total incapacity
34. death (note that the MPF will be regarded as part of
the member's estate and can be claimed by the
personal representative of estate)
small balance account of less than $5,000, no
contributions made to a scheme for 12 months, and
declared not to become employed or self-employed
within the foreseeable future.
Source:
http://www.mpfa.org.hk/english/abt_mpfs/abt_mpfs_f
ms/abt_mpfs_fms_bp/abt_mpfs_fms_bp.html
35. Q3.13:MPFA: Suggestions
that people should consider
when identifying retirement
investment goals
Johnathan Lee
Maggie Ng
36. 4 suggestions
1. Set clear investment goals
how much you would need
2. Assess your own risk tolerance
age, personality, financial status
3. Estimate your investment horizon
longer investment horizon = higher risk tolerance level
4. Adjust your investment portfolio at different
life stages
different life stages , many changes
37. Important factors you need to consider
when review your portfolio
investment objectives, instruments &assets of the
funds
proportion of different investment instruments
market risks of the funds
Sources:
MPFA - Look After Your MPF Investment:
http://www.mpfa.org.hk/textonly/english/mpf_edu/mpf_edu_laymi/m
pf_edu_laymi_uyn/mpf_edu_laymi_uyn.html
40. Employees should select fund(s) that
best match their investment objectives.
Factors for employees to consider:
Years to retirement
Years you will be investing in MPF before your retirement
the impact that inflation has on your retirement nest egg, and
compounding effect will have over the long term
the longer you have until retirement, the more risk you can afford
to take your portfolio can focus more on growth oriented equity
funds
closer to retirement, wish to preserve your retirement nest egg
more conservative type fund (eg.bonds )
41. Life cycle need
What are your priorities at various stages in life in relation to your
investment goals
Especially relevant to your voluntary contributions
Retirement goal
How much do you need to enjoy a comfortable retirement
Risk tolerance
All investments have risks
Consider the investment objective and scope of the fund and
how much the related price fluctuation is going to affect you
Again, one can normally afford to invest in growth oriented funds
with a higher price volatility if one has a long term investment
horizon
42. References
Hong Kong Investment Funds Association
MPF FAQ
http://www.hkifa.org.hk/eng/educationalmt
_mpf_faq.aspx
